Are Private Exchanges Right for Your Organization?

With all manufacturing companies employing 50 or more having to offer their full-time employees health care coverage come January 15, 2015, it might be the right time to think about Private Exchanges – a more cost-effective option that gives employees the chance to find a best-fit plan.

Alex Tolbert, Founder, Bernard Health | Jul 25, 2014

The concept of Private Exchanges isn’t entirely new to the manufacturing industry, but it’s beginning to pick up traction with large companies like household product manufacturer Church & Dwight, which now offers them to its employees.

A Private Exchange refers to when an employer offers five or more health plans to its employees. Five options aren’t as many as the hundreds one would find on the healthcare.gov public exchange, but it’s enough to offer meaningful choice to employees.

The 3,200 employees at Church & Dwight have several coverage options from multiple insurers from which to choose. The company estimates that it will reduce its company-wide health costs by 6%-8%.

With all manufacturing companies employing 50 or more having to offer their full-time employees health care coverage come January 15, 2015, it might be the right time to think about Private Exchanges – a more cost-effective option that gives employees the chance to find a best-fit plan.

Here are five questions to ask when deciding if Private Exchanges are right for your manufacturing organization:

Would employees be happier with more options?

More plans mean employees have more freedom to find better plans for their health situations. With Private Exchanges, the sickest employees can select the plan with a low deductible and the employees who don't expect to use their health insurance can purchase a health plan with a low monthly premium and high deductible.

Ultimately, you don't want to upset the system if you don't believe employees will be happier. It all depends on the employees at your organization. It's an important question to ask.

Can employees enroll online rather than through paperwork?

This is critical to the success of a Private Exchange because insurance companies generally require it. Why do they require it? Because otherwise it can be a paperwork nightmare.

Let's take an example. This year, your organization offers two health plans. With two health plans come four tiers for each health plan (employee only, employee + spouse, employee + child, employee + family). This year, there are eight different payroll deductions that someone has to keep up with. A lot of paperwork.

Next year, you want to implement a Private Exchange with eight plan options. Now, there aren't just eight different payroll deductions, there are 32. Why? For each of the eight plans offered on the Private Exchange, there are four payroll deduction amounts for the four different tiers. 8X4=32. Paperwork nightmare. Therefore, an online enrollment platform is essential for a Private Exchange.

Are you tired of picking a plan to meet the needs of your sickest employees--rather than the needs of everyone in the organization?

To help put this in perspective, let’s look at Nashville, Tenn., where Vanderbilt Medical Center has the only pediatrics unit in the city. If an employee has a sick child, there is no way the HR manager can go with a cheaper option that leaves Vanderbilt out of network. Can you imagine the outrage? Even if there are better options that benefit the vast majority of employees, HR's job is often to minimize employee complaints so they select health plans based on this end goal.

Private Exchanges take the pressure off organizations to select the "perfect" health plan and allow them to offer more options. The parent with a sick child, the employee with no health care expenses, and everyone in between can get a plan closer to their needs. And the pressure is off your HR department.

Do high renewals over the next several years concern you?

According to the Kaiser Family Foundation and the Health Research & Education Trust, 72% of the manufacturing industry offers coverage to its employees – the highest of any private industry. But faced with high renewals – some as high as 20% a year for companies like Eskay Metal Fabricating in Buffalo, N.Y. – companies are looking for quick, cost-effective alternative coverage options.

Private Exchanges can be a way to control costs if you’re facing high renewal rates over the next few years. If an exchange is something your company is seriously considering, a year with a flat renewal is an ideal time to switch over to a Private Exchange option. Otherwise, employees may associate increased health care costs with the implementation of a new exchange program if the transition occurs during a year with a higher renewal rate.

How important is employee and HR solidarity to your company?

Picking a health plan for your organization is very difficult for two main reasons. One, there is a lot of health care dysfunction in our current climate – and the main way this dysfunction is felt is through rising health care costs. Two, employees tend to be vocal when they disapprove of the health plan decision even though it’s almost never the employer’s fault.

But health care freedom is possible. Employers and employees are on the same side of the table, with blame placed in the appropriate direction, towards health care dysfunction instead of employers.

One way to freedom is by offering a monthly amount, a Defined Contribution, to employees and letting this be the focus of the health plans you offer. When health care dysfunction increases and costs continue to go up, you can increase the monthly amount you give employees to select a health plan on the Private Exchange. In this scenario, you have increased the benefits and become the generous employer instead of being blamed for healthcare dysfunction.

The manufacturing industry is historically known for providing its employees with consistent, quality health care. The new health care reform law, however, will make it increasingly hard for manufacturing companies to maintain the same level of coverage without profitability taking a hard hit. If these anxieties sound familiar, Private Exchanges might be a great way to take advantage of the health care reform law, using new options to benefit your organization and employees while also controlling costs.

Alex Tolbert is the founder of Bernard Health, a company that provides non-commissioned, expert advice on health, Medicare and COBRA insurance and medical bill consulting.